Previously, I had written a post on what value-cost averaging is and how it can be another viable alternative to dollar-cost averaging. In this post, I want to backtest this strategy against 10 years of STI data.
In dollar-cost averaging, we invest a fixed amount of money into the stock market each period, purchasing variable units of the investment.
In value-cost averaging, we will invest an amount of money so that the value of our investments will be the same as if we had saved up a fixed amount of money every period and not investing it.
Let me give you an example to illustrate. If we do dollar-cost averaging, we might simply invest $100 each month into the STI. In value-cost averaging, we have to see what the value of our current investments is. We would buy units of STI so that the value of our investments …Read the full article →